The fund carries out various functions to meet SEC requirements. They must publish a prospectus for the fund. They must hold an annual meeting of shareholders, issue a proxy statement, and provide for the election of a board of directors. The board has the authority to hire and fire the fund manager, but as a practical matter most boards are controlled by the fund company.

A few mutual funds hire management firms to manage their investment portfolio. At least one has three competing managers and replaces the poorest performing one with a new one each year. Similarly some funds are for institutional investors. These can wholesale their services to mutual funds. A fund can then be composed of a managed blend or specific allocation of several component funds.

A scandal was reported recently in the payment of brokerscommissions. Some mutual fund companies agreed to pay full commissions to brokers for their stock trades (rather than the deeply discounted negotiated rates they should have received) in return for services such as "research" provided by the broker. This practice created an off-the-books slush fund which was not audited and had considerable potential for abuse.

A second recent scandal related to after hours trading. In return for major deposits in the fund, professional investors were permitted to place buy and sell orders after the 4 pm closing hour. As they knew how the market had changed by that time, effectively they could post date transactions and make instant profits--which were in effect skimmed from the assets of the other shareholders.

Both practices were stopped, and some mutual fund companies were assessed fines. A few went out of business.